AIG’s Hand on the Helm, Its Mouth Elsewhere

Let’s make this clear from the start. Robert Benmosche is not primarily responsible for saving American International Group Inc., the troubled insurer and financial services company he was brought in to lead in the summer of 2009.

Willingly or not, U.S. taxpayers were.

So, as AIG announced this week that Mr. Benmosche will step down Sept. 1 and hand the reins of the insurer to Peter D. Hancock – a move that came sooner than expected — it’s time to look back on the Benmosche era at AIG, the biggest and, arguably, the most controversial of the financial crisis bailouts.

In 2008, AIG received a $182 billion commitment from the Treasury Department and the Federal Reserve. Ultimately, it tapped $67.8 billion. That’s what saved AIG. And if you’re an investor, it was the government’s support that helped keep the stock afloat in the early days of Mr. Benmosche’s tenure as chief executive.

But even with government support, being the chief executive of AIG was hardly a matter of minding the store. As the Latin scholar Pubilius Syrus wrote, “Anyone can hold the helm when the sea is calm.”

For AIG under Mr. Benmosche, the sea was anything but calm. Mr. Benmosche had serious flaws as CEO, but few could argue that he wasn’t effective in his primary task. The AIG ship has emerged from a perfect storm of its own making.

AIG not only repaid the government (which made an additional $5 billion on warrants it got as part of the bailout), but made a $9 billion profit last year and paid taxes for the first time since its bailout. (AIG would have reported a smaller profit in 2012 and no profit the year before that had it not been for a $20 billion in income tax credits.)

Today, it’s half the size in terms of assets and revenue. But AIG’s most recent year profit was close to two-thirds of its 2006 profits ($14 billion) and more than the company produced in 2007 ($6.2 billion). The stock is up more than 340% since its nadir in the summer 2009.

That’s impressive given that AIG ground through a series of sales, divestitures and spinoffs to raise money. Moreover, Mr. Benmosche was selling international divisions and insurance portfolios in a buyer’s market with an added twist: there weren’t any buyers.

Yet AIG, under Mr. Benmosche, was able to sell assets, notably, its Asian unit, AIA Group Ltd., in 2012. That deal netted more than $35 billion — a little more than Prudential PLC, a U.K.-based insurer, agreed to pay in 2010 before cutting its offer to $30.4 billion. Mr. Benmosche was second-guessed for allowing the Prudential acquisition to fall through.

Mr. Benmosche’s moves were, as Paul Newsome, an analyst at Sandler O’Neill & Partners, said “very important and quite critical to the recovery.”

The problem for Mr. Benmosche was that AIG’s turnaround was often overshadowed by his blunt talk. The former CEO of MetLife immediately doused gasoline on a public furious with the AIG’s cavalier, and ultimately costly, approach to risk. He defended post-bailout bonuses to employees, called Washington lawmakers opposed to them “crazies” and said then-New York State Attorney General Andrew Cuomo “doesn’t deserve to be in government.

In an interview with The Wall Street Journal last year, Mr. Benmosche was as controversial as ever. He rejected the widely accepted notion that some institutions cannot be allowed to collapse because the damage to the financial system and economy would be too great. “I believe ‘too big to fail’ has been solved,” he said. The public’s outrage over bonuses, he added, was based on “ignorance.”

Criticism of the bonuses was “intended to stir public anger, to get everybody out there with their pitchforks and their hangman nooses, and all that — sort of like what we did in the Deep South [decades ago],” he said. “And I think it was just as bad and just as wrong.”

Mr. Benmosche, apologized for the comment. And as disgusting as it was, you can see his underlying message: Bob Benmosche was going to take the heat for AIG and its employees. Mr. Benmosche and AIG declined comment for this column.
For “any firm that’s gone through a lot of troubles, the vast majority of employees didn’t do anything wrong,” Sandler’s Mr. Newsome said. “It’s important to have a strong leader to say the vast majority of people at the firm didn’t do anything wrong.”

But, he added, it’s true Mr. Benmosche wasn’t always the diplomat many wanted him to be – and that was to AIG’s benefit.

“Often times, with firms that survive trouble, they end up with the CEO the firm needs, not the one they want,” he said.

In the end, Mr. Benmosche clearly went too far in attacking AIG’s critics. After all, the critics were the ones who pledged AIG enormous sums until it could back on its feet. They had a right. Alternatively, Mr. Benmosche could have defended AIG by talking about why it was important as an institution, what it did well, what it wouldn’t do anymore and ultimately how it was recovering.

“I can’t think of how [Mr. Benmosche’s comments] did anything but take AIG backwards,” said Brad Naylor, financial policy advocate for the consumer rights group Public Citizen.

At times, he did. In 2012 he told shareholders he wanted to “thank America for giving us the opportunity to keep our promise to make America whole on its investment in AIG plus a substantial profit.”

Unfortunately, those comments often were bookended by name-calling and condescension. At best, he was trying to move the target away from AIG and more toward himself. His controversial comments obscured a pretty good turnaround story.

So, if you’re judging purely by the bottom line, then yes, Mr. Benmosche “held the helm” through turbulent waters. As for the other lines, AIG might have been better off had he not uttered them.